Isis Pharmaceuticals (ISIS)

Basic and diluted net income (loss) per share

We follow the provisions of SFAS 128, Earnings per Share. We compute basic net income (loss) per share by dividing the net income (loss) applicable to common stock by the weighted-average number of common shares outstanding during the period. We compute diluted net income (loss) per share using the weighted-average number of common shares and dilutive common equivalent shares outstanding during the period. Diluted common equivalent shares for the three months ended September 30, 2008 consisted of 3.3 million shares issuable upon exercise of stock options and 1.0 million shares issuable upon exercise of warrants.  The calculation excludes the 25/8% convertible subordinated notes, the convertible promissory note to GlaxoSmithKline and 2.9 million stock options because the effect on diluted earnings per share would be anti-dilutive.  As we incurred a loss for the three months ended September 30, 2007 and nine months ended September 30, 2008 and 2007, we did not include diluted common equivalent shares in the computation of diluted net loss per share because the effect would be anti-dilutive.